COLLEGE OF SOCIAL STUDIES

Hla Myint, "The Classical Theory of International Trade and the Underdeveloped Countries," Economic Journal 1958

Adam Smith, Wealth of Nations (Liberty edition) pp 446-51 and para 15-16 p 458-9.

David Ricardo, whose "On Foreign Trade" you read last year, was the first economist to give a fully articulated exposition of comparative advantage. (Smith had earlier set forth a far simpler vent-for-surplus theory.) Ricardo's theory is embedded in and fully consistent with all other aspects of the Ricardian system. What gives each country its unique comparative advantage is briefly noted on pages 80-81. Regarding its monetary aspects, just as described by David Hume of last year, prices are proportional to the gold-based money supply; currencies among nations exchange at a fixed rate. That is, changes in imports and exports do not occur as a result of exchange rate movement, but as a result of price level movements responding to changes in the money supply derivative from balance-of-payments surplus or deficit.

The Ricardian model is long-run and highly abstract--it assumes that perfect competition rules and that all prices are flexible. "External balance" is painlessly brought about by a uniform change in the value of money (an increase in prices = a fall in the value of money, a diminution in prices = a rise in the value of money). But if some prices change more than others, then Keynes observed that such monetary adjustment "affects different classes unequally, transfers wealth from one to another, bestows affluence here and embarrassment there, and redistributes Fortune's favours so as to frustrate design and disappoint expectations." These "short-run" costs of the inflation-deflation aspects of a fixed-rate foreign exchange regime are not mentioned by Ricardo.

Adam Smith's theory, based upon vent-for-surplus and specialization—sometimes referred to as "absolute advantage"—is pleasingly simple. And according to Hla Myint it has greater explanatory power vis-a-vis underdeveloped countries in the period 1890-1930.

We will meet for an hour on Wednesday at 3 pm to discuss the Ricardian system. Chapter 7 is perhaps the most difficult reading of the seven weeks, hence the handout to help you through. For Friday there will be no essay, but you will be expected to turn in a 2-to-3 page outline of Myint's model as to how foreign trade was introduced into economies such as Nigeria, and the size of the gain from that trade. Logical consistency leads to a valid model but not necessarily to one that is true! What are the testable predictions of Myint’s model? The Nigerian international trade statistics provide some key evidence for you to carry out the test. What additional data would have been useful for making this test more complete?

B. Ohlin, "A Condition of Interregional Trade", International and Interregional Trade

Hecksher, "The Effects of International Trade on the Distribution of Income," Ekonomisk Tidskrift (1919)

Peter Lindert, International Economics (9^th edition, 1991) chps 2 and 4 for background

Stanley Lebergott, "The Returns to U.S. Imperialism, 1890-1929," Journal of Economic History 1980

This week we consider two additional theories of comparative advantage. Last week we began with Adam Smith's notion of absolute advantage which is based on underutilized resource capacity of some kind, along with Myint's reformulation. David Ricardo set forth comparative advantage, based on some type of "specialized factor" that each nation possesses (possibly population density, inherited traditions of skill and organization, natural resource endowments--including climate!). Ricardo's long-term construct assumes full employment and a zero trade balance: any expansion in an export industry involves import-competing firms closing elsewhere and releasing their resources to make possible the export expansion.

The 800-pound gorilla is the Heckscher-Ohlin theory of relative resource endowment: here it is assumed that there is full employment of all resources as with Ricardo, but no country is assumed to possess a convenient ad hoc "specialized factor" that gives it a comparative advantage. Rather H-O with brilliant neoclassical austerity, assume that the quality of capital and labor is homogeneous and identical in all countries of the world, and that all producers, from Cuba to Switzerland, have access to identical technology. The only thing that differs between countries is the relative endowment of land, labor and capital. Comparative advantage, reflected in market prices, derive from the differing slopes of isoexpenditure lines that flow from the differing endowments. The Hecksher reading explains how international trade redistributes income, creating winners and losers within each country. The Vernon product cycle theory, as simple as Smith's vent for surplus, posits that countries do not have access to the same technologies and it is differences in technology that create comparative advantage. Rivoli simplifies the model even further.

Spend approximately half of your 1500-word essay (but unlimited material may go in footnotes) expounding H-O and Vernon and contrasting them to Ricardo. (Do not rely on Lindert.) In the final half of your paper utilize Lebergott's material, on trade and investment with the Caribbean and the Philippines during our colonial period, to test each of the four theories. Do not get captured by Lebergott's Marxian framework, but look only at the changes he reports in profit rates, factor prices and technology--all variables about which the various trade theories have predictions.

Kravis et al, "Real Income Comparisons for 100+ Countries" Economic Journal 1978

Your Econ textbook: theory of the firm (AC and price & output determination) and

Y=C+I+G+(X-M) and two less familiar variants, Y = Cd + Id + Gd + X where "d" stands for "domestically produced", and E = Cd + Id + Gd + M, where "E" stands for "National Expenditure" or "Absorption".

In our analysis of comparative advantage and the terms of trade we were concerned with the real foundations of international trade. We now turn to its financial aspects, how comparative advantage is translated into market prices and the resulting international flows of goods & services.

The most important regulator maintaining a balance between the inflow and outflow is the exchange rate. An imbalance of imports in excess of exports leads to a rise in the price of foreign exchange (a devaluation); this in turn raises the internal prices of all imports and exports. {We assume our country's imports and exports of any commodity are but a small fraction of total world trade in those products and its actions never affect world prices.} These within-country price changes affect both the quantity of imports demanded and the profitability to firms that produce exports and import-substitutes. Thus a permanent movement in the exchange rate results not only in a movement toward external balance but also to important changes in a country's consumption patterns and in the relative size of its productive sectors. The latter is known as structural adjustment.

Our assignment this week is to learn all the steps in this interconnected process. These steps involve both micro and macro economics. Our method for this task is that of the "problem set."

1. Foreign exchange is the medium of economic transactions between nations. There are only two types of international transactions. The first is transactions for the purchase and sale of goods & services {recorded in the "Current Account"}. The second is transactions related to the international flow of savings in the form of financial assets{recorded in the "Capital Account"}. Please type your answers.

1a. Give an example of three different services that might be exported by the US. Give an example of one service that might be imported by Nigeria.

2. Derivative from these international flows of commodities and savings, in any one country the price of foreign exchange (the "dollar") is determined by its Supply and the local Demand. Thus in Nigeria the exchange rate is the equilibrium price of the dollar, ie the number of Naira required to purchase one dollar. The Supply of dollars offered by foreigners in the Nigerian "Forex" shifts out (i) when there is a large increase in the world price of one of Nigeria's exports, (ii) when the world demand for all Nigeria's products shifts out in the boom phase of the business cycle in industrialized countries (growth in foreign disposable income) and (iii) when foreign investors or lenders or donors direct a capital inflow into the Nigerian economy.

2a. What three causes would result in an inward shift of the foreign exchange Supply schedule?

2b. The Demand for dollars by Nigerians is the mirror image of the foreigners desire to supply dollars. What are those three determinants of Nigeria's demand for dollars?

2c. We now have an equilibrium exchange rate, the local currency price of a dollar in Nigeria. What will determine the approximate quantity of dollars sold and bought at that exchange rate?

3. Draw the Supply and Demand in the forex market. The price of the dollar is five Naira and the quantity of dollar transactions is 150 million. After each of the following events below, indicate whether it represents a devaluation or an appreciation.

3a. Show what happens in the forex market when there is a major recession in Europe and America. Show plausible values for the new exchange rate and volume of dollar transactions.

3b. Return to the original equilibrium. There is a coup in Nigeria, and Nigerians shift their local savings from Nigerian banks to banks in America. {"No capital controls."} Show what happens to the exchange rate and the volume of dollar transactions.

3c. Return to the original equilibrium. The world price of oil (which constitutes one half of Nigeria's exports) rises from $5 to $20 dollars per barrel. Show what happens to supply and demand, and plausible new numeric values for the exchange rate and the new volume of transactions.

3d. The full amount of the new foreign exchange earnings is collected by the Government. How much is that? In the next period the Government spends the full amount on new development projects. Of this spending half is for imported goods and half goes to labor and other nontradable items. Show what happens to the exchange rate relative to 3c?

3e. In the next period the newly employed workers on Government projects spend their new income, half on imports and half on non-tradable goods. Show what happens relative to 3d.

4. We now turn to firms or farmers who produce tradable goods. We want to see how they are affected by movements in the exchange rate. We assume they are perfect competitors and earning only a normal rate of profit. We also assume there are no changes in the money supply (Corden sometimes assumes that M_s is expanded after a devaluation). Show a representative average cost curve, marginal cost curve, demand schedule, marginal revenue, price and quantity. This tradable good sells for 20 naira and 100 are being produced by the firm.

4a. The exchange rate moves from 5 to 6 naira to the dollar. Assume there are no imported inputs. What happens to the firm's horizontal demand curve, price, quantity and the abnormal profit box? [Don't forget the role of MC = MR]

4b. Now assume that the import-content of production cost is 50%. Show this situation in a new diagram, calibrated in a similar fashion to 4a.

4c. Given the situation in 4b, do you anticipate that the tradable sector will be stable, expanding or contracting and through what mechanisms?

5. Now consider what is happening in the nontradable sector. Remember, M_s does not change. First, what are the characteristics of a good that renders it "nontradable"? Second, map out in a similar fashion to 4 the cost and demand schedules facing a barbershop shop and a contractor in building construction, both of whom we classify as producers of nontradables. Show them before and after the increase in the price of foreign exchange. Assume the same initial price and quantity as given in 4. Condition 4b applies to contractors, but not to barbers. Finally, what do you think will be happening to the overall nontradable sector, analogous to the question in 4c.

6. Up to this point we have focused on the switching effect caused by a change in the exchange rate. We now take note of the "absorption effect." Indeed the devaluation was caused by an excess of imports over exports which means we were "absorbing" more than we were "producing." We can define absorption as our expenditures on C + I + G + M and our production (GDP) as C + I + G + X. Only when X = M are the two the same. This is precisely the phenomenon that the Corden explores.

Draw a PPF with GDP partitioned into tradables and nontradables just as Corden on p 27. We will substitute numbers for his letters - the two intercept terms T and T' should be 100 and 150 respectively. Set his D equal to 100 tradables and 120 nontradables, with B equal to 80 tradables and 120 nontradables. What is the size of our Current Account Deficit?

Our absorption expenditures is his HH'. To reestablish external balance we must shift it inward and alter its slope. What policy instruments do we have to shift it inward? Can you intuit what the size of that reduction, using nontradables as your numeraire, will have to be?

To change its slope to JJ', our policy instrument is the exchange rate. (The slope of the national expenditure line is the "Real Exchange Rate" or Pt/Pnt.) The 20% devaluation had the effect of raising the price of all tradables by 20%. If we assume the initial slope is one tradable to one nontradable, the new slope will be one tradable to 1.2 nontradables. Show the new tangency point on the PPF with numeric values. Will further devaluation be necessary? If there is contractionary monetary policy, will it effect the price of tradables? Of nontradables? How can monetary policy neutralize or wipe out the effects of a devaluation?

7. Drawing on Kravis et al, how valid is the conceptual division of commodities into "tradable" and "nontradable"? Can you find numbers in Kravis's table 1 to calibrate the extent to which one can find a pure tradable or a pure nontradable? How might these impurities qualify the operation of the Corden model?

8. Beyond the problem of "category purity" there is the problem of supply response. If we assume that the devaluation is effective and that relative prices are altered, will producers respond? Will some sectors contract and others expand as predicted by the model? Drawing on the World Bank paper, what are the various supporting actions that must occur for the economy to respond as the model predicts? Be sector-specific and be as detailed as you can be as to why the existing situation in each of these areas inhibits the supply response.

Ezekiel Walker, "Structural Change, the Oil Boom and Nigeria’s Cocoa Economy 1973-1980" Journal of Modern African Studies 2000

The next two weeks treat Nigeria and its development since its independence in 1960. In the first week we will be more descriptive, covering the major developments in the economy and constructing charts of seven macroeconomic variables over the period 1965-2005. Mobilizing the statistics and creating the charts will be a group enterprise.

A word about the readings. The first two readings give an overview of Nigeria prior to the 1973 oil windfall. They provide what we thought ex ante would be the beneficial consequences of the new oil discoveries. My 1982 article provides the ex post realization. It is an easy-to-read summary of the three major aspects of the oil syndrome: linkage effect, exchange rate effect and spending effect. Walker's paper relates how the Government attempted to protect and develop the major cocoa export industry in the face of the oil windfall. Finally the Gelb "chap 13" is an indepth treatment of everything that went on.

Prior to the arrival of oil and its dramatic price increases of 1973 and 1979, Nigerian agricultural and industrial development could be said to have been constrained by (a) limited earnings of foreign exchange [needed to import high-technology capital goods and intermediate inputs] and (b) limited national savings to finance the required investments. The sudden improvement in Nigeria’s international terms of trade by 700% dissolved those two bottlenecks: the massive fountain of oil revenue was 100% foreign exchange and 100% public savings!

In Week 4 then, our principal task is to construct a picture of the Nigerian economy's trajectory from 1965 to the present. Utilizing the WDI CD-rom and the IFS database, and working as a team, you should develop charts 1965 to 2005 that trace (a) GDP per capita in constant prices, (b) the changing sectoral shares of agriculture, manufacturing, construction and services in non-oil GDP, (c) the size of the investment effort as reflected in gross fixed capital formation as a percent of nonoil GDP, (d) the importance of oil exports as a percent of nonoil GDP, (e) the size of nonoil exports as a percent of nonoil GDP, (f) the fiscal deficit as a percent of nonoil GDP, and finally the size of the Current Account Surplus/Deficit as a percent of GDP. The latter two give you a perspective on absorption. For a chart on the World price of oil, go to www.wtrg.com. For the volume of oil in barrels per day for 1980 onwards, go to www.eiu.com. The IFS has index numbers for barrels per day prior to 1980.

You may draw all your data from the WDI and IFS databases. You should all work together on the statistics.

Why is nonoil GDP preferred to just GDP? Because oil is almost all economic rent, because it diverts no factors of production from other uses, and because it has no linkages to other sectors of the economy it is best treated as being "outside" the real economy. It represents a windfall of foreign exchange resources that accrues to the Government to be used to develop the rest of the economy.

If official statistics are not available, how do we approximate nonoil GDP? Well, approximately it is GDP less oil exports. "Approximately" because about one tenth of the value of oil exports is local value-added. So if GDP is 100 and the oil export share 15%, then nonoil GDP is 100 - 15 (.9) = 86.5. This 86.5 replaces 100 as the new base for calculating the new, larger sectoral shares. If Agriculture is 30% of GDP, for nonoil GDP it is 30/86.5 = 34.7%

Your text (not to exceed 6 pages) should draw upon the readings to interpret the patterns revealed in your tables or bar charts. As you would expect there is not a single pattern to be extracted from each table, but different patterns in different subperiods whose discovery is derived from a close inspection. The decade of oil boom is approximately 1970-1980, followed by 1981-86 of slow growth, and then devaluation and fiscal discipline for three years, and from 1990 onwards an uncontrolled roller coaster. Your essay may make extensive use of the "bullet" format given the nature of your assignment. Finally, give me a footnote indicting what area of the statistics is particularly your own work and where you have made heavy reliance on others.

Brian Pinto, "Nigeria During and After the Oil Boom: A Policy Comparison with Indonesia", World Bank Economic Review 1987

Our lens this week is the Corden model as articulated in "The Design of Adjustment". Our attention is on the nominal exchange rate, the REER, absorption, fiscal balance and the response of imports and exports to all of these. Switching does not occur automatically and, in the extreme case, may not occur at all. This may be because of defects in microeconomic policy, weak financial institutions and administrative incompetence.

Remember that we follow the convention that the exchange rate is the price of a dollar. Pinto follows this convention, his index numbers for the REER fall when the price of the dollar falls (appreciation) and rise when the price of a dollar rises (devaluation). The World Bank follows the opposite convention, so its REER figures on p 11 of the Industry Sector Report show index numbers of 100 for 1980 (the base year), 166 for 1985 and 24.66 for 1989 once the devaluation is under way. To convert for the reciprocal, we simply divide every index number into unity. So 1980 at 1.00 divided by unity is 1.0, 100 divided by 166 is .60 and 1.00 divided by .2466 is 4.06 ie 100, 60 and 406

The second procedure is linking two time-series index numbers that have different years as the base of 100. This is known as rebasing. Here is how we rebase the earlier index to 1985.

1965	1970	1975	1980	1985	1990
87	93	100	122
			92	100	89
66	70	75	92	100	89

To convert to a common base we take one of the overlap years and take that ratio as a constant to convert the base-year series that is being rebased. 122/92 = 1.326 which we apply as denominator to all the numbers in the 1975 base-year series, as shown in the third line. If we wished to rebase to 1975 = 100, we would multiply each number in the 1985 series by 1.326.

We have a new variable this week, the real effective exchange rate. The REER is defined as the proportionate change in the exchange rate measured at constant prices between two or more points in time. It can be expressed as REER = e*(PPI in Nigeria’s trading partners / PPI in Nigeria). PPI is the producer price index or wholesale price index, which refers to tradable goods. Here is an example. In 1978, e = 5 naira to the dollar, in 1982 e is still 5 naira to the dollar. But Nigeria has had inflation of 141 % during these four years as against inflation of but 24% in its trading partners. So the REER = 5/1 x (124 / 241) = 5 x .5145 = 2.57 Naira per dollar. So while e has remained constant the REER has greatly appreciated. Usually we express this in the form of an index number, making the initial observation the base period. So 1978 = 100 and the 1982 = (2.57/5.0)*100 = 51.5. On the other hand, the nominal exchange rate is unchanged at 100. Intuitively, what lies behind the better purchasing-power adjusted exchange rate is that inflation eroded 59% of the naira’s value while only 19% of the dollar’s value, yet they still exchange at the original ratio. Nigeria is now getting a much better deal. Roughly speaking, REER is a proxy for P_t / P_nt.

Now that we have assembled time-series statistics about all the "real" variables in the economy, we want to introduce two financial variables, the exchange rate and the rate of inflation. We have three questions. First, does the Current Account (principally imports) in fact respond to movements in the REER? Second, do the economy's sectoral shares respond after several years to movements in the REER as Corden and the IMF predict? Third, which of our causal variables--gross fixed investment, export growth, the trade balance, the REER--seem to have a significant role in explaining the economy's per capita GDP growth?

As to new charts, there are only three. One that plots the actual Naira price of the dollar, starting at about .75 naira and ending at well above 20 naira. Second, a chart of the CPI measuring the annual rate of inflation. Third, movements in the REER.

A few tips. Because oil is composed mainly of economic rent, we would not expect oil exports to be like others: we do not expect to see its volume rise with devaluation or fall with appreciation. While many of the effects of REER movements are blunted by all the problems noted in the "Design of Adjustment", we would expect to have a powerful impact on at least the volume of imports. We would of course hope it would stimulate exports, improve the current account balance and result in some "switching" toward a higher proportion of tradables in the GDP.

To summarize, your paper (not to exceed 6 pages of text, but unlimited footnotes) builds on last week's paper. It adds one further causal (explanatory) factor which is the exchange rate effect, as measured by the REER. In this revision you want to draw, in a more self-conscious manner, on the demand curve shifts the cocoa farmer or the local manufacturer faces as the REER rises or falls, along with associated shifts in his cost curve. This is the material you mastered in the Week 3 problem set. Continue to use Kilby-Walker-Gelb as well as Pinto. The two-page IMF article on Botswana, along with the Indonesian example, suggest how Nigeria might have achieved a very different outcome. There is nothing automatic or inexorable about the natural resource curse, although politically difficult it can be fully harnessed by an appropriate set of economic policies.

S.C. Tsiang, "Taiwan's Economic Success Demystified", Journal of Development Economics, 1989

Oskar Kurer, "The Political Foundations of Economic Development Policies", Journal of Development Studies .

All data will be drawn from Taiwan Statistical Data Yearbook 1972 and various numbers of Industry of Free China.

We now turn to an economy that is an oil importer which suffered Nigeria’s boom in reverse. More importantly, Taiwan is a country where the quality of economic management has been as good as Nigeria’s has been bad. As the two readings make clear, good management encompasses not only setting the policies, but the care with which they are implemented and the speed with which policy mistakes are corrected. With no vent for surplus, handicapped by limited arable land, by limited natural resources and by the dead-weight burden of a large army, Taiwan nevertheless has achieved one of the best long-run growth performance of any underdeveloped country in the world.

The sixty-four dollar question is: by what economic policies has the government of Taiwan been able to achieve such an extraordinary 40-year growth record? Prof. S. C. Tsiang, one of the major architects of these policies, argues that it was a laissez-faire neoclassical recipe --as currently embodied in the exhortations of the “Washington Consensus”, Corden, the IMF and the World Bank. “Horse feathers” says Robert Wade: the critical ingredient was active Government interference in a variety of factor and product markets. Peter Kilby observes, whatever the recipe – Adam Smith or Thomas Mun-- Taiwan’s surging exports did not give rise to an exchange rate effect, did not suffer from minimal linkages and did not lead to aggregate spending surpassing absorptive capacity. If you can figure out how Taiwan side-stepped these three potholes, you will have a good start towards answering the sixty-four dollar question.

Your assignment is to review the record of this performance based on the information in Tsiang (the economist) and Wade (the political scientist). And to render a reasoned judgment as to which of the two makes the more persuasive case. You want to pay attention to the broad macro policies and to sector-specific policies. Where ever you can, draw on the vocabulary and the analytics of Week 3.

You may use bullet points; no more than six pages. Only three bar graphs are required, for the years 1955 – 1995. They are (i) the growth rate of per capita GDP, (ii) the growth rate of exports, and (iii) or gross fixed capital formation as a percent of GDP. Inter alia, you want to see if a relation exists between (ii) and (iii) vis-à-vis (i). And between (iii) and (i) and the incremental capital-output ratio. These data are to drawn from Taiwan Statistical Data Yearbook 1972 and various numbers of Industry of Free China which will be handed out at the pre-tutorial. Individual statistics from Tsiang and Wade should be used liberally in your text.

Just as Dollar provided a political economy perspective on why non-optimal policy choices were made in Nigeria, Wade provides a similar background on the deeper motivations of policy choice in Taiwan – note I have you read chapter 9 on politics immediately after the introductory chapter. The article on the clientelistic political foundations of inward-looking development policies by Oskar Kurer is optional; perhaps from the bottom of page 16 to the bottom of p 19 is worth your time. In writing your essay outline, you may have reference to political economy factors as much or as little as you like.

We start our statistics from 1955 because it was in 1958 that the critical devaluation and the abolition of price controls occurred. The 1950s and early 1960s was the “agricultural period” which is well covered by Tsiang, but ignored by Wade.. Make use of Wade’s excellent index at the back of the book. Particularly useful items are : agriculture, oil crisis, comparative advantage, education, engineers, exchange rate, and export promotion. Definitely do engineers.

From last week you have mastered the basic facts of Taiwan's development, the structural evolution of the economy's productive sectors and the nature of government policies and industry specific interventions. Your task this week is to bring calibration to the relative prices and spending aggregates that provided the incentives and restraints that directed this process. What was the level of Government spending, its relative size to the rest of the economy? [Recall that Y = C + I + G + (X- M) ] What was the role of fiscal stimulus or fiscal restraint? How did inflation and the nominal exchange rate (and their close cousin, the RER) affect the international sector and the balance of payments? What role has domestic savings played in the country's development?

To carry out your analysis we want to add eight new charts to the three you did last week. No. 1 is Government spending over GNP and No. 2 is the fiscal surplus or deficit over GNP. No. 2 is often linked to money creation (i.e. deficits], No. 3. is the CPIas a measure of inflation. Turning to the international sector, No. 4 is Exports over GNP. No. 5 is the RER with Japan and the USA. No. 6 is the Current Account balance over GNP. No. 7 is national savings over GNP.. And No.8 is in US dollar values as reported in the INDUSTRY OF FREE CHINA Table 12 "direct investment Abroad" and the incoming "Direct Investment in Taiwan".

For calculating the RER, only new procedure this week is calculating Taiwan's REER, or more exactly its RER with Japan and its RER with the US. It was explained in Week 5's assignment sheet and the calculation is shown in Tsai (p 61 figure 2, p 70 notes to the table). Following Tsai, use Taiwan's "wholesale export price index" table 28 and from the IFS Yearbook, the PPI for the US and the WPI for Japan. Regarding the fiscal deficit/surplus, we must rely on Tsiang and Tsai p 58 lines 19 & 20.

Wherever it fits, utilize last week's text. As you examine your eleven variables, use the vocabulary and concepts-- and even calibrated S & D diagrams-- of Week 3 as you draw inferences from your data. Does today's GFCF/GNP have a differential effect on tomorrow's GNP growth? What has happened to the capital-output ratio and why?

Do exports respond to (small) changes in the RER? Why are Taiwan's movements in RER so different from Nigeria's? To what extent has Taiwan used an undervalued exchange rate to fuel export-led growth? Drawing on Spence and the new chapters in Corden, what are we to make of Taiwan's persistent excess of aggregate output over absorption? Is it a disequilibrium situation that should be brought into balance?

Spring, 2008	Peter Kilby